How Cohabitating Can Affect Your Finances

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BY: ANDREW STEWART

Many couples have a desire to share their lives without going through a formal marriage ceremony. Initially, it may be a matter of unpacking a few boxes, getting a key cut and living together. There may be a plan to formalize the relationship at some point. But often years can go by without ever making it “official”. The longer the arrangement lasts, the higher the stakes become – particularly if children are involved, the relationship ends, or a partner dies. For married couples, there are certain rights and obligations that are clearly defined, but this is not always the case for couples that live together.

Here’s some intriguing information:

Although marriage rates have fallen, cohabitation relationships continue to increase, between 2006 and 2011, the number of common-law couples rose 13.9%, more than four times the 3.1% increase for married couples. For the first time in 2011, the number of common-law couple families (1,567,910) surpassed the number of lone-parent families (1,527,840). As a result, common-law couples accounted for 16.7% of all census families, while lone-parent families represented 16.3%.

I call this “intriguing” not because I object, but because even I cohabitated with a girlfriend and didn’t consider the financial ramifications of what could happen only the benefits at the time. Every couple that breaks up has faced the issue of “this is yours, that’s mine” from books and music to pets and furniture. But cohabitation as you get older (and hopefully wealthier) can pose additional challenges. A couple can live together without being married. But even if they have been together for one, three, fifteen or forty years, and even if they have several children together, they are never “automatically” married. This means that, if they break up, common-law couples don’t have some of the protections married couples have.

People in common-law relationships don’t have these protections:

  • They don’t benefit from the protection of the family residence if ownership of the home or the apartment lease is in the name of one person only.
  • They don’t have a right to a division of their property if they separate.
  • One partner can’t ask for support payments from the other partner (financial support for one person in the couple who might need it).
  • The partners don’t inherit from each other if one dies without a will or if one was not named as an heir in the will.

When it comes to money, the law doesn’t recognize relationships not officially documented on paper. In order for a couple to have common-law standing in Ontario and Manitoba, they must be living together in a conjugal relationship for three years or more, or one year with a child.

Buying a House?

With mortgage rates near historic lows and home prices at all time highs, unmarried couples may decide not only to move in together but also to buy their own place. This could be a great move, but be aware of potential problems. The house belongs to the person whose name appears on the legally recorded deed. It doesn’t matter what verbal agreements were made or who paid the mortgage. So, make sure both parties are named on the deed. Also, keep this in mind: If you both apply for the mortgage, you’re both responsible for paying it — even after you break up. If both parties are on the deed as owners, but only one is on the mortgage, the one responsible for the mortgage remains responsible, even if that person has moved out and moved on.

Where there’s a will, there’s less confusion

A will is an extremely important document to have to leave property to a common-law partner after you die. If you’re unmarried and die without a will, your estate still goes to your next of kin — but that’s not your partner. If you don’t relish the idea of a parent, a sibling or some distant uncle inheriting everything, get a will.

For a lot of blended families, they want to leave their estate to their kids from the previous relationship. So, life and critical illness insurance in many cases is the solution.

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